BlackBerry ended its 2014 fiscal year with a smaller-than-expected loss, but the positive bottom line was darkened by a worsening cash position and a miss on revenue.
The Waterloo, Ont.-based smartphone vendor lost US$423 million, or 80 cents per share, in its fiscal fourth quarter. That compares with a year-earlier profit of $98 million. But, compared to the previous quarter’s $4.4 billion loss ($8.37 per share), investors were cheered and sent shares up by 7 per cent in pre-market trade.
Revenues of $976 million for the three months ended March 1 were down 64 per cent from $2.68 billion during the year-ago quarter, and well below consensus estimates of $1.11 billion. Excluding one-time charges, BlackBerry lost $42 million, or 8 cents per share, as the company continues to transition into a smaller, enterprise-focused version of its former self.
The company’s cash position eroded by $500 million to $2.7 billion from $3.2 billion in the previous quarter, almost reversing a $600 million increase between September and December. The company nevertheless anticipates maintaining its cash position in future quarters as streamlining efforts continue, and projects break-even cash flow by the end of fiscal 2015, in line with comments made by executive chairman and CEO John Chen in November.
“I am very pleased with our progress and execution in fiscal Q4 against the strategy we laid out three months ago. We have significantly streamlined operations, allowing us to reach our expense reduction target one quarter ahead of schedule,” Chen said in a statement. “BlackBerry is on sounder financial footing today with a path to returning to growth and profitability.”
More products needed
Although the foundation may be in place, Carl Howe, vice president, research and data sciences for Yankee Group, says it may not be enough.
“I think John Chen has the right idea: focus on enterprise sales and keyboard-based devices,” Howe told Yahoo Canada Finance. “However, I don't believe that BlackBerry can cost-cut its way to success, and he needs new products in the market soon.”
Howe says BlackBerry is selling to a willing enterprise audience, with 7 per cent of U.S. feature phone owners who are upgrading their phones confirming their intent to buy a BlackBerry.
“That figure is actually a bit higher than BlackBerry's ownership share among consumers,” he said. “Further, existing BlackBerry owners are still fairly loyal to the firm: in our 2014 US Consumer Survey, we found that 42 per cent of existing BlackBerry owners intend to buy another BlackBerry OS device.”
Exactly how many devices customers intend to buy – and which operating system they run – may be a troublesome reality for BlackBerry.
“Handset sales (recognized not shipped into the channel) of 1.3 million were below the street’s forecast of 1.7 million," said analyst Troy Crandall of MacDougall, MacDougall & MacTier. "Based on the shipment data, 68 per cent of BlackBerry handsets being put into reseller channels are still BB7 devices, indicating interest in the higher margin BB10 devices appears to be lackluster.”
Crandall warns this problem shows no signs of going away.
“The handset weakness can’t be ignored since the company still revolves around the handset until it makes more significant strides in penetrating the enterprise with other service offerings,” said Crandall. “Growth in developing markets appears to be lagging and that is what BlackBerry had hinged much of its consumer handset growth on. Lack of interest in BB10 handsets is worrisome as this is the OS that targets the enterprise.”
Despite BlackBerry’s aggressive expansion into mobile device management tools that allow IT administrators to manage iOS and Android devices in addition to BlackBerry handsets, Howe says enterprise sales will demand a broader focus.
“I'm looking for new enterprise server offerings on the back end and keyboard-based devices for productivity-obsessed executives to hit the market before I expect to see BlackBerry's growth story improve,” he said. “That's the story that BlackBerry needs to tell businesses, and frankly, it's just not quite in place yet.”
BBM, which has seen significant subscriber growth since being launched on iOS and Android devices last year, may also be underperforming as a driver of growth. Investors drove BlackBerry shares up last month in the wake of Facebook’s acquisition of WhatsApp. The logic: If WhatsApp’s 450 million users were worth US$19 billion, then BBM’s 85 million monthly active users should also be similarly valued.
“BBM provides an opportunity going forward, either as an integrated or stand alone business, but it’s too early to evaluate how successful the company will be in monetizing the service,” Crandall said. “When it comes to advertising, BlackBerry’s strength in privacy and security doesn’t work well in allowing for targeted advertising. While less targeted advertising can still generate revenue, it doesn’t attract premium prices.
The clock is ticking
In an interview with Reuters soon after assuming the CEO post in November, Chen warned it could take upwards of 18 months to complete the turnaround.
“I know we have the ingredients to build a long-term sustainable business,” he said. “I have done this before and seen the movie before.”
BlackBerry’s Q4 results put Chen’s turnaround plan ahead of schedule, and echo Chen’s experience at Sybase, which he took over in 1997 amid years of shrinking revenues and widening losses and within a year had returned the struggling company to profitability. Chen subsequently re-engineered the company into a mobile data and analytics powerhouse that was ultimately acquired by SAP AG in 2010 for US$5.8 billion.
But almost five months into his tenure at BlackBerry, he has barely a year before his self-imposed deadline is up. Despite the short-term response to today’s numbers, whether investors and customers stick with BlackBerry for the duration remains to be seen.
Carmi Levy is a London, Ont.-based independent technology analyst and journalist. The opinions expressed are his own. email@example.com